Retiring Boomers Prompt Increase in Phased Retirement

As 25 percent of the U.S. workforce nears retirement age, more companies are considering phased retirement programs to address skills shortages and to help employees transition to an easier and more affordable retirement, according to a survey by HR consultancy Hewitt Associates.

Hewitt’s survey of more than 140 mid-size and large U.S. employers shows that:

61 percent have developed or will develop special programs to retain targeted, near-retirement employees.

Just under half (47 percent) have some type of phased retirement arrangement available to their employees.

Almost 40 percent expressed an interest in establishing a phased retirement program in the future.

While just one-in-five (21 percent) believe that phased retirement is critical to their company’s HR strategy today, that number nearly triples (61 percent) when employers look ahead 5 years.

“With the rising tide of boomer retirees, employers will be losing key talent at a time when attracting and retaining skilled workers will be more important than ever,” explains Allen Steinberg, a principal at Hewitt Associates. “At the same time, rising medical costs, lengthening life spans and the declining prevalence of traditional pension and retiree medical benefits mean that employees will either have to work longer, save more or live with significantly less than they are accustomed to.”

As these trends converge, Steinberg notes, phased retirement programs will continue to become more attractive options for both employers and employees.

Employers are ramping up their information-gathering efforts for potential phased retirement programs and, in particular, are increasing their efforts to obtain information from employees nearing retirement eligibility. Of those companies that have begun gathering information, their approaches include:

Using general industry research and discussions with key business leaders and managers as a way to gather information on phased retirement programs (cited by 63 percent of respondents).

Gathering formal input from near-retirement employees (22 percent do so currently, but that number is expected to more than double to 54 percent in the next few years).

“It’s critical that employers understand employees’ perspectives,” advises Steinberg, who suggests gathering formal input from employees through focus groups or other initiatives. This can prove especially helpful in determining the types of initiatives that will effectively retain workers in specific roles, or with specialized skills that represent the greatest risk of loss to the organization.

“One of the easiest—and most cost-effective—ways to determine what will be most beneficial to near-retirement employees is to simply ask them what type of arrangement would be most effective,” he notes.

“What many companies find is that their existing flexible work arrangements may be easily adaptable to their retirement-eligible employees,” says Steinberg.

Re-evaluate Rehire Policies

In addition to retaining current employees, employers are reconsidering their policies toward rehiring retirees. While almost half of employers (45 percent) indicated they currently have policies in place that limit the ability to rehire retirees, a significant portion (46 percent) said they were likely to review their rehiring policies in the future.

Legal Barriers Diminish

For many years, employers focused on the perceived legal barriers to phased retirement, but changes made by Congress in the Pension Protection Act of 2006 reduced some of the legal constraints (see Pension Law Eases Way for Phased Retirement Plans). “More importantly, as employers really dig into the design of phased retirement programs, they realize that the legal barriers may not be nearly as significant as internal—or primarily cultural—obstacles,” Steinberg says. “These can be overcome—but only if the organization believes the effort involved is worth the reward.”

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